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Full Legal Disclaimer
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Management LLC (“SPCM”) (possibly along with or through our members, partners, affiliates, employees, contributors and/or consultants) along with our subscribers and
clients has a short position in all stocks (and are long/short combinations of puts and calls on the stock) covered herein, including without limitation C3.ai, Inc. (“C3”) and
therefore stand to realize significant gains in the event that the price declines. Following publication of any presentation, report or letter, we intend to continue transacting in
the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. All expressions of opinion are subject to
change without notice, and Spruce Point Capital Management does not undertake to update this report or any information contained herein. Spruce Point Capital
Management, subscribers and/or consultants shall have no obligation to inform any investor or viewer of this report about their historical, current, and future trading
activities.
This research presentation expresses our research opinions, which we have based upon interpretation of certain facts and observations, all of which are based upon publicly
available information, and all of which are set out in this research presentation. Any investment involves substantial risks, including complete loss of capital. There can be no
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information contained in this report may include forward looking statements, expectations, pro forma analyses, estimates, and projections. You should assume these types of
statements, expectations, pro forma analyses, estimates, and projections may turn out to be incorrect for reasons beyond Spruce Point Capital Management LLC’s control.
This is not investment or accounting advice nor should it be construed as such. Use of Spruce Point Capital Management LLC’s research is at your own risk. You should do
your own research and due diligence, with assistance from professional financial, legal and tax experts, before making any investment decision with respect to securities
covered herein. All figures assumed to be in US Dollars, unless specified otherwise.
To the best of our ability and belief, as of the date hereof, all information contained herein is accurate and reliable and does not omit to state material facts necessary to
make the statements herein not misleading, and all information has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or
connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer, or to any other person or entity that was
breached by the transmission of information to Spruce Point Capital Management LLC. However, Spruce Point Capital Management LLC recognizes that there may be non-
public information in the possession of C3 or other insiders of C3 that has not been publicly disclosed by C3. Therefore, such information contained herein is presented “as
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timeliness, or completeness of any such information or with regard to the results to be obtained from its use.
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All rights reserved. This document may not be reproduced or disseminated in whole or in part without the prior written consent of Spruce Point Capital Management LLC.
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Spruce Point Recognized As An Industry Leading
Short-Selling Activist
On February 16, 2023 Spruce Point Capital Management was ranked #2 in Insightia'sActivist Short Seller Top Five for the year
2022. We would like to offer a special thanks to all our readers far and wide across the globe for their support of our work.
Source: ActivistInsight.com
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Spruce Point Is Again Short C3.ai (NYSE: AI),
After Our Previous Accurate Short Call And Sees 45%
Downside Risk
Spruce Point’s critical “Strong Sell” report on C3.ai (NYSE: AI) on February 16, 2022 accurately highlighted numerous concerns,
many which came to fruition. Shortly after our report, the CFO resigned, the Company missed multiple financial targets, and it
changed its description of what is a customer. Shares declined by 60% to $10.16, below our $12.85 – $15.40 price target range.
Concern What Happened? Spruce Point Accuracy Grade
Sell-
side revenue expectations were wildly
optimistic for FY23 (YE April 2023) and
estimate revisions were on the horizon
FY23 Revenue Estimates are lower by -20%
FY23 Revenue Estimate (Current): $261.5M
FY23 Revenue Estimate (Feb 2022): $332.9M
A+
Revolving door at the CFO position and
serious concerns about the current CFO
Former CFO, Adeel Manzoor resigned a mere 9 days after
our report was published (8-K source)
A+
C3 has used a shifty definition that has
grown less transparent over time to define
what is a customer
C3 changed its customer count definition 14 days after our
report
. Its new customer count is a now a “best estimate
”.
How hard is it to count ~200 clients for a Company that
has been around for over +10 years? (8-K source)
A+
C3 frequently pivots to whatever is the
“hot” technology buzz. First it was C3
Energy, then C3 IoT, then C3 AI and
now….
Now C3 is attaching itself to ChatGPT by issuing a press
release referencing the hot technology purchased by
Microsoft
A
C3’s stock could be down by 40% - 50%
Stock declined by 60%
Stock closed at a low of $10.16 on December 28, 2022
B
We were too conservative with our
price target
Spruce Point Report Card of Concerns Raised In Feb 2022
5
Reasons We Continue To Be Constructively
Negative On C3.ai
Concern Bull Case Spruce Point Belief of Reality
C3’s Generative
AI Product
C3 will be a leader in
Generative AI and be a
big winner because of
ChatGPT
On January 31, 2023, C3 Generative AI Product was launched (available March 2023) solely
with a press release. Wouldn’t it be helpful for investors to see a glimpse of the product?
Did C3 build this in the last couple months to capture the buzz?
Not one single SEC filing mentions the word “generative”
Our interviews of former employees suggest there were no generative AI products in the
Company’s pipeline and that its press release referencing ChatGPT was opportunistic and in
advance of any customer use case
Microsoft
Partnership
Microsoft and C3 have a
partnership to develop
AI Solutions
C3 sometimes uses Microsoft’s Cloud Services
Significant R&D
Investment
+$1.0 billion invested
C3 Engineering job openings are down 40% in 1 year and its EMEA CTO for Energy &
Industrial (a big current industry focus), recently left
Profitability and
cash flow
Profitability is set to
improve next year
C3 has yet to turn a profitable year and will notch its biggest loss in its history in
FY23 of ~$100M. The market doesn’t believe C3’s path to positive cash flow
Use of Stock
Repurchases and
Insider Buying
Shares are inexpensive
and being bought
Company has not bought any stock since March 2022. They have an $85m buyback
authorization and repurchased no stock through Oct 31, 2022 when the stock was below
$12/sh. Insiders also have not purchased any stock
D.A. Davidson
Buy Rating
D.A. Davidson initiated
C3.ai with a $30 target
calling it a
“Scarce” Asset
The timing of the initiation report is suspect. Spruce Point has successfully bet against D.A.
Davidson tech promotes like iRobot. If it’s a scarce asset, why has C3.ai never disclosed any
takeover interest from a buyer? Microsoft bet on ChatGPT with an investment, not C3.ai
Capital Buffer
The Company has
$800m+ of net cash
The CEO has shown a shrewd ability to raise money when interest in the Company is hot.
It could dilute investors with an equity raise. Is D.A. Davidson expecting to help raise capital in
exchange for putting a Buy rating on the stock?
Air Force Contract
Large new revenue
opportunity
On Feb 9,2023, C3.ai issued a press release about providing mission-
critical AI solutions to
the USAF crowd-sourced flight data program. This news appears identical to previous news
released on December 7, 2022
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Spruce Point Recently Interviewed A Former C3.ai
Engineer Familiar With Its Technology Product Offering
“C3 just announced the launch of a Generative AI Product that will be available in March that will integrate Open AI and
advanced models such as ChatGPT. Can you distill what this means and why all the excitement around this?”
Spruce
Point
Question
Answer
“Do you have any comments on the D.A. Davidson research report?”
Spruce
Point
Question
Answer
“The enthusiasm in the report around ChatGPT being a game changer for c3, I disagree with. . . I followed the stock
and so I saw the stock jumping in the past week and it made me laugh that ChatGPT is what made the stock jump.”
“How could Generative AI be integrated into C3's current AI architecture?”
Spruce
Point
Question
Answer
“The company has chased trends in the past. I would say that generative AI is AI related. It's just not that related to the other
types of AI that C3 has been doing. So, like a typical C3 project is kind of building a business intelligence dashboard where a
company can go look at all of their data and gain insights from their data, often with some optimization algorithms applied so
they can learn how to do things more efficiently. I just don't, in my mind, see an immediate connection between those
types of applications that they've been selling and Generative AI.”
“The press release that C3.ai released around generative AI says they're doing it for enterprise search. [This implies that]
they're helping some large company who has a bunch of files or other information search to find the right things within all of
their files. ..the enterprise search thing didn't sound that exciting to me. I've worked at a lot of software companies where
it's a common like hackathon project for engineers to say, we, we've got all these different systems and we wish we could
search them and find the answers to what we're looking for. The trouble in doing that is more often connecting all those
systems, security issues, not like our search algorithm isn't good enough.”
Source: Spruce Point Research Interview
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Spruce Point Recently Interviewed A Former C3.ai Sales
Executive Familiar With Its Technology Product Offering
“What is your take around the recent hype around ChatGPT as it relates to C3.ai?”
Spruce
Point
Question
Answer
“My opinion there has been a frenzy around ChatGPT, but C3.ai is not in the market space, but they will benefit from, dare I
say, the hype around it. I’m not convinced ChatGPT is completely a neutral system. I don’t think they have any technology
that directly replicates it or would spur on activities in that sector. I may be wrong, they may be working on something.“
“My understanding is that the business hasn’t fundamentally changed, but the go-to-market strategy has become more based
on influencing.”
“In my opinion, major launches take 2 to 3 months lead up, so that everyone is aware of the architecture behind what was
coming, how to go-to-market, who the targets are, etc. It would appear that there was none of that in this case. I think it came
as a surprise to the C3.ai staff as it did to the market. My point is this typically means it is something they are going to do, but
they don’t necessarily have a pipeline for it at the moment. I’m sure they will, but it’s premature for a user case.”
Source: Spruce Point Research Interview
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We Believe C3.ai’s Recent Air Force News Appears
To Be Recycled
Source: C3.ai Press Release
Source: C3.ai Press Release
December 7, 2022 Press Release
February 9, 2023 Press Release
Look Familiar?
Why would C3.ai issue a
press release appearing
to rehash information
during a period with
heightened trading
activity in its stock price?
9
0
10
20
30
40
50
60
70
80
90
100
2009 2011 2013 2015 2017 2019 2021 2023
Cap and Trade IOT AI Chat GPT
Reminder: C3’s Long History, And Multiple Name
Change Pivots Chasing Technology Buzz Words
We believe C3.ai has gone through multiple iterations as a company chasing popular technology themes and buzzwords while
incorporating them into its formal business name. When C3 was created in 2009 it largely operated as C3 Energy chasing the themes
of “Cap & Trade” and “Smart Grid”. As the cap-and-trade fever subsided, the new theme of Internet of Things (IoT) was gaining
popularity and C3 pivoted in 2016 by changing its name to C3 IoT. As the IoT buzzword peaked and began to trend down, C3 yet again
changed its name to C3.ai to reflect its new focus on “artificial intelligence”. Technology trade circulars such as ZDNet commented on
C3.ai as follows, “patented technology is really a platform-as-a-service for the Internet of Things with some fairly standard AI mixed in.”
C3 Name Change History Overlaid By Google Keyword Trends
Source: Google trends, Wayback machine, C3.ai IPO Prospectus
2009 to 2016
C3, Inc. Operating as C3 Energy
2016 to 2019
C3 Iot, Inc
2019 to Present
C3.ai, Inc.
What’s
Next?
C3.GPT?
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AI’s Stock Price Movement Is Not Reflecting
Fundamental Realities
LinkedIn Job Openings
FY23 (YE April 2023) Revenue Estimate Revisions
Source: LinkedIn Premium Insights
Source: Bloomberg
Revenue
expectations are
down -21% since
Spruce Point
warned about C3.ai
in Feb 2022
Even C3.ai Promoting
Analysts Are Not
Increasing Revenue
Estimates Based On Its
Generative AI Suite
Launch
The evidence does not indicate that C3.ai ramped up engineering hiring to launch its recently promoted Generative AI Suite.
In fact, engineering jobs have been declining. Furthermore, even generally bullish sell-side analysts are not increasing their
revenue expectations based on the recent suite announcement. Do investors bidding up AI’s stock more than 2x know
something that analysts close to management do not?
Engineering Jobs
In Strong Decline
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The Market Doesn’t Believe C3.ai’s Cash Flow
Claims, And Neither Do We….
CEO Quote on AI’s Cash Flow Forecast
AI’s Historical and Projected Financials
Source: Bloomberg Interview, Feb 14, 2023
Note: Cash flow positive claim also made in Aug 2022
The market continues to
forecast
cash flow burn
C3.ai has never
generated cash flow
AI appears to have a big credibility issue. The Company has made repeated claims that it will be cash flow positive. However,
despite these claims, the current consensus still calls for substantial cash burn over the next twelve months and beyond.
“I don’t expect our cash balance to go
below $700m, we’re very well
capitalized, we’re in a position to
grow the business, advance the
technology and deliver a cash
positive, profitable business growing
at a very rapid rate.”
Source: Bloomberg
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We Actually Agree With The Sell-Side Price Targets
For Once And See 45%+ Downside To AI
For once, Spruce Point agrees with the sell-side view of AI’s stock price. Deutsche Bank, Morgan Stanley, and JP Morgan, the
only bulge bracket firms providing research coverage, all have price targets ranging from $11 to $13. Morgan Stanley revisited its
price target recently on February 2, 2023, just a few days after C3’s “Generative AI” hype press release and remained bearish
with a “Sell” rating and a $12 price target. We think the AI buzz will simmer down significantly from now until AI reports earnings
results on March 2, 2023 when the market again will be forced to look at AI’s fundamentals and be reminded of its continuous
cash burn and lackluster revenue growth.
Broker Recommendation Price Target
D.A. Davidson Buy $30
JMP Market Perform $19
Canaccord Hold $14
JP Morgan Neutral $13
Wedbush Neutral $13
Piper Sandler Neutral $13
Morgan Stanley
Underweight/
Attractive
$12
Deutsche Bank Sell $11
Average Price Target
(ex: Recent Davidson Report)
% Implied Upside (Downside)
$13.57
-46%
Source: Bloomberg
Based on $25 per share stock price
D.A. Davidson initiated on February 2, 2023 and the author
admits that the report used ChatGPT! How accurate and
reliable can this really be? How credible can an analyst
covering mostly large, non-AI technology stocks be?
DA Davidson Initiation
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Four Basic Questions For C3.ai Management
You made the claim this week that AI’s stock price is
undervalued. Why hasn’t the Company recently used
the stock buyback program and why no insider buys?
Cash Burn
Market partnerships with Microsoft, Amazon,
Google (Alphabet)
Undervalued Security
Generative AI
You claim to be able to turn cash flow positive, but the
market doesn’t believe you. What exactly is the path to
stop the substantial cash burn?
Can you give a specific example of how generative AI
will help one of your customers? What exactly is the
revenue model?
You promote your partnerships with these leading
companies, but do you pay them or do they pay you?
Please elaborate on the terms of the relationships.
Spruce Point has four basic and simple questions that C3.ai should clarify to allow investors to assess if the
>$1.0 billion market value increase in its valuation is justified.
